TDS DEDUCTED BUT NOT PAID BY EMPLOYER

I think it must be deducted by Employer.

Here are relevant case laws & judicial decisions where the issue was employer deducted TDS from salary but did not deposit it with the Government, and the employee claimed credit in his ITR:

1)  ITAT Kolkata – Employer Deducted TDS but Didn’t Deposit (ITA No.1533/KOL/2025)

✔ Fact: Employer deducted TDS from employee salary but failed to deposit it.
✔ Issue: Employee claimed credit of the deducted TDS in ITR, but tax department denied it due to non-payment by employer.
✔ Held: The Tribunal held that once tax is deducted at source from salary, the employee cannot be demanded to pay tax again. Employee is entitled to get credit of TDS even if employer did not deposit it.
💡 Tribunal relied on CBDT Instruction No. 275/2014-IT(B) and Section 205 of the Income-tax Act.
➡ Employee should be granted full TDS credit; liability to recover the tax lies with the employer under Section 201.

 2️) ITAT Pune – Mukesh Padamchand Sogani vs ACIT (ITA No.29/PUN/2022)

✔ Issue: Employer deducted TDS on salary but did not deposit. Credit denied because Form 26AS did not reflect deposit.
✔ Held: ITAT Pune held that requirement is only deduction, not payment. Since TDS was deducted from salary, employee should be allowed credit in intimation under Section 143(1) even if employer didn’t deposit it.

3️) Bombay High Court Precedent – Yashpal Sahni vs ACIT (2007)

✔ High Court held that if tax is deducted at source from salary, the employee cannot be called upon to pay that amount again, even if employer failed to deposit it with the Government.
✔ It is irrelevant whether the tax was deposited or Form 16 was issued. Employee furnished payslips showing TDS deduction.
✔ Employer / deductor is liable to pay the deducted tax + interest / penalty, but employee should not suffer.

4️) High Court Precedent – Kartik Vijaysinh Sonavane vs DCIT (Gujarat High Court)

✔ Held that where tax is deducted at source but not deposited, department cannot deny benefit of TDS to the employee.
✔ Credit should be given; failure lies with the employer

If you filed ITR claiming TDS credit on salary that was shown deducted but not deposited:

✔ Case law supports allowing credit
✔ You should use payslips / salary evidence
✔ Notify AO with proof (bank entries + deduction shown)
✔ Department cannot raise demand against you for those taxes

Instead, revenue must pursue the employer for deposit and penalty.

Deposit tax , file returns. 

If your employer deducted TDS from salary but didn't deposit it, you are protected under Section 205 of Income Tax Act.

Key Case Law : Bombay HC in Yashpal Sahni v. Rekha Hajarnavis (2007) ruled: Dept can't demand TDS from employee if deducted by employer, recover from employer only. ​

What to do:

1. File ITR claiming TDS as per salary slips/Form 16 (even if missing in 26AS).​

2. Keep proofs: salary slips, bank statements showing net pay after TDS.​

3. If demand notice comes: File rectification u/s 154 or grievance on e-filing portal with proofs + cite Sec 205 & Yashpal Sahni case.

4. Complain to employer's TDS AO for action against them (interest/penalty u/s 201, 276B).​

Employer faces consequences, not you. CBDT instructions also confirm no coercive recovery from employees.​

Ask employer for deposit & file tds return or at least pay the remaining balance in your bank account.